NACMâ€™s Credit Managersâ€™ Index Shows Increases in Combined Sectors

NACM's Credit Managers' Index gives an optimistic outlook with July's combined index rising to 56â€”an increase from last month's 53.4 and the highest reading since last October.

"Think about that for a momentâ€”[that's] as high as it was when the GDP numbers for the country were trending at close to 5% growth," said NACM Economist Chris Kuehl, Ph.D. "This is a pretty stunning turnaround."

The driving force behind the combined index's higher reading comes from the index of favorable factors, which improved from 59.6 in June to 63.5 in July. The combined sales category, however, showed the most impressive gain, jumping from 56.6 to 65.1. Durable goods orders as well as the Purchasing Mangers' Index have seen similar upward movements, Kuehl added.

For the first time since last year, all four of the favorable categories were above 60, reflecting a sign of impending growth. The index of unfavorable categories showed improvement as well with a combined reading of 51 in July, up from 49.2 in Juneâ€”these gains though are not as impressive as the index of favorable factors. However, while three of the six unfavorable factors remain under the contraction zone, any sign of improvement within these categories is positive, Kuehl said.

"This is a solid trend and one that everybody hopes will continue into the remaining months of the year," Kuehl advised. "One cautionary note is to look at July and August of last year as they were strong and were followed by a dip."

- Jennifer Lehman, NACM marketing and communications associate

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Workflow Automation Tools Improve Output

Automating workflow in a credit department not only improves efficiency and lowers costsâ€”it is essential for ensuring the future success of a company. A credit manager's role in the automation process proves vital as well.

"I always tell credit managers that you want to be the one to introduce the [options for workflow automation]," said Pam Krank, president of The Credit Department, Inc. in St. Paul, MN. If CEOs or company presidents don't know what automation tools are available and then hear that a competitor's credit department is revamping its system, "right away they will assume you are not on top of things," she warned.

Krank describes workflow automation in credit departments as "sink or swim" movement. Companies that go against the current are more likely to struggle financially and endure higher employee turnover, she explained.

"What we're trying to do is to eliminate as many manual tasks as we can," Krank said. "We are deconstructing all the processes ... and looking at what can be automated."

Workflow automation tools are available for small- and mid-sized companies with limited resources and will save them money in the long run. Krank will provide examples and speak more specifically on this topic during an NACM webinar on Monday. She will explore cloud-based technology and its low-cost options for workflow automation. "The cloud technologies have become extremely affordable," she said. "I want to give [webinar attendees] the ability to see what the cloud does and ... give them the best practices. Hopefully, it will trigger some discussions and influence them to look at what they can do with their own internal process."

While undertaking workflow automation of a credit department is an investment, it will pay off down the road by saving the company money and creating less work. Automating "prepares you for the future instead of overwhelming you with the same way you've been doing it for years and years," Krank added.

- Jennifer Lehman, NACM marketing and communications associate

NACM's Workflow Automation webinar will be held on Aug. 3 from 3 to 4 pm (EST). For more information or to register, please click here.

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Virginia Law Voids Mechanicâ€™s Lien or Payment Bond Waivers Prior to Start of Work

Subcontractors and suppliers in Virginia can no longer waive their mechanic's liens and bond rights prior to starting work on a project, according to a new state law effective July 1.

The law states: A provision that waives or diminishes a subcontractor's, lower-tier subcontractor's or material supplier's right to assert payment bond claims or his right to assert claims for demonstrated additional costs in a contract executed prior to providing any labor, services or materials is null and void.

"Virginia took a step forward and made it unlawful for general contractors and subcontractors to waive lien rights via language in their contracts prior to their customers providing labor and/or materials," said Chris Ring, national sales representative for NACM's Secure Transaction Services. "When general contractors and subcontractors have the ability to waive lien rights via language contained in their contracts, it creates an unreasonable advantage as it relates to nonpayment. This is especially problematic for material suppliers selling to subcontractors." Project managers and sales reps often are the ones who execute the contract between those parties, Ring pointed out. "Credit managers may not be aware of the contract provision until it is brought to their attention after they have filed their lien or even worse, when they commence suit to enforce the lien."

The new legislation doesn't afford general contractors the same protection, which means they could waive their rights prior to starting a project, said James Fullerton of Fullerton & Knowles, P.C. "I think it should have. There's no reason to exclude general contractors." However, the amendment brings Virginia law in line with Maryland code, Fullerton noted. He further added that the wording of the legislation does not make it clear as to whether it would apply to open contracts signed prior to July 1.

- Diana Mota, NACM associate editor

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Housing Industry Remains Confident

Month-on-month single-family home sales fell 6.8% in June. Though new home sales appear weak, it's not a reason to become discouraged, said NACM Economist Chris Kuehl, Ph.D. Sales numbers are based on contracts that haven't closed yet, Kuehl said. "The [total] figure is down, but it is difficult for the federal government to effectively collect this data because nothing official is really filed." Year-on-year, June's numbers were 18% higher.

Our builders say "there is solid traffic in sales offices and a lot of consumer interest in new homes, which should bode well for sales moving forward," said Tom Woods, chairman of the National Association of Home Builders (NAHB) and a home builder from Blue Springs, MO.

U.S. home prices have continued to rise, however, according to the latest S&P/Case-Shiller Home Price Indices. Data released Tuesday for May 2015 show gains nationwide over the last 12 months.

The 10-city composite (4.7%) and national (4.4%) indices show slightly higher year-over-year gains, and the 20-city composite (4.9%) has marginally lower year-over-year gains, compared with April. Ten cities reported greater price increases, with Denver, San Francisco and Dallas, at 10%, 9.7% and 8.4%, respectively, having the highest year-over-year gains.

Compared with April, the seasonally adjusted national index remained the same; the 10-city and 20-city composites both fell 0.2%. Ten cities were down; eight, up; and two, unchanged.

"As home prices continue rising, they are sending more upbeat signals than other housing market indicators," said David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. "Nationally, single-family home price increases have settled into a steady 4-5% annual pace following the double-digit bubbly pattern of 2013." The rate of home prices over the next two years will likely slow down, Blitzer said. "Prices are increasing about twice as fast as inflation or wages. Moreover, other housing measures are less robust. Housing starts are only at about 1.2 million units annually, and only about half of total starts are single-family homes. Sales of new homes are low compared to sales of existing homes.

"First-time homebuyers are the weak spot in the market," Blitzer noted. "First-time buyers provide the demand and liquidity that supports trading up by current home owners. Without a boost in first timers, there is less housing market activity, fewer existing homes being put on the market and more worry about inventory.

According to the National Association of Realtors (NAR), however, June's existing-home sales reached their highest pace in more than eight years, while the cumulative effect of rising demand and limited supply helped push the national median sales price to an all-time high. Month-on-month, the seasonally adjusted annual sales rate rose 3.2% to 5.49 million. "Sales are now at their highest pace since February 2007 (5.79), have increased year-over-year for nine consecutive months and are 9.6% above a year ago (5.01 million)," NAR stated.

- Diana Mota, NACM associate editor

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Longstanding opposition aside, the Senate advanced a so-called must-pass piece of legislation devoted to highway and transportation projects, which includes attachments to revive the Export-Import Bank (Ex-Im) of the United States after a month of dormancy. The House also has passed a highway bill minus the Ex-Im language, meaning the two sides will have to hash it out in private committee talks.

In the process of passing its version, the Senate voted to block filibuster attempts aimed at derailing an effort to renew Ex-Im's charter. Senate and House leadership are now expected to work into the weekend to ensure that a bill funding various transportation-based projects continues beyond an Aug. 1 deadline. It's an issue that's certain to generate heated debate as the House's most conservative lawmakers have little interest in accommodating Senate proposals not in its version, including the Ex-Im language.

At the end of June, Congress allowed Ex-Im's charter to expire, leaving the United States as one of the only developed/power economies without such an agency. Jim Wise, NACM's lobbyist and managing partner at Pace LLC, noted last week that Ex-Im's only foreseeable chance at renewal would occur if language was attached to important and unrelated legislation already close to passage, which is the case here.

Ex-Im, through the fees it charges, typically generates a taxpayer-neutral result or more frequently a surplus. It has not relied on taxpayer money to cover its activity at any point this decade. Agency supporters are concerned that previously funded companies may need to move some manufacturing operations outside of the U.S. if Ex-Im remains closed; that competitors subsidized by foreign governments would have an unfair advantage; and that domestic jobs will shrink at companies of various sizes. Economists and analysts have panned, even mocked, assertions from political conservatives claiming that the program amounts to a sort of corporate welfare.

- Brian Shappell, CBA, CICP, NACM managing editor

Check NACM's Credit Real-Time blog after the weekend to find out how the Senate-House standoff regarding Ex-Im played out.

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